STATE BOARD OF ACCOUNTS 302 West Washington Street …302 West Washington Street Room E418...

STATE BOARD OF ACCOUNTS 302 West Washington Street

Room E418 INDIANAPOLIS, INDIANA 46204-2769

AUDIT REPORT OF

GREENE COUNTY GENERAL HOSPITAL

A COMPONENT UNIT OF GREENE COUNTY, INDIANA

January 1, 2008 to December 31, 2008

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TABLE OF CONTENTS

Description Page Hospital Officials ................................................................................................................................ 2 Independent Auditor's Report ............................................................................................................ 3 Management's Discussion and Analysis ............................................................................................ 4-8 Basic Financial Statements:

Statement of Net Assets .............................................................................................................. 9 Statement of Revenues, Expenses, and Changes in Net Assets ............................................... 10 Statement of Cash Flows – Restricted and Unrestricted Funds ................................................. 11

Notes to Financial Statements ........................................................................................................... 12-22 Exit Conference .................................................................................................................................. 23

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HOSPITAL OFFICIALS Office Official Term Executive Director Jonas S. Uland 01-01-08 to 12-31-09 Treasurer Timothy W. Norris 01-01-08 to 12-31-09 Chairman of the Hospital Board Ralph E. Hiatt 01-01-08 to 12-31-09 President of the Board of County Commissioners Bart Beard 01-01-08 to 12-31-09

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9

GREENE COUNTY GENERAL HOSPITALSTATEMENT OF NET ASSETS

December 31, 2008

PrimaryAssets Government

Current assets:Cash and cash equivalents 4,483,382$ Investments 1,015,249 Patient accounts receivable, net of

estimated uncollectibles of $13,368,303 11,062,470 Supplies and other current assets 342,714 Due from Home Healthcare Agency, net of estimated

uncollectibles of $1,417,905 547,980 Due from Worthington Family Practice Clinic, net of

estimated uncollectibles of $434,665 539,317 Due from Greene County General Hospital Foundation 50,000

Noncurrent cash and investments:Internally designated 191,920

Capital assets:Land and construction in progress 963,870 Depreciable capital assets, net of accumulated depreciation 2,820,691

Total assets 22,017,593$

Liabilities and Net Assets

Current liabilities:Accounts payable and accrued expenses 848,288$ Estimated third-party payor settlements 405,000 Other current liabilities 534,824

Total liabilities 1,788,112

Net assets:Invested in capital assets, net of related debt 3,784,561 Unrestricted 16,444,920

Total net assets 20,229,481

Total liabilities and net assets 22,017,593$

The accompanying notes are an integral part of the financial statements.

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GREENE COUNTY GENERAL HOSPITALSTATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS

Year Ended December 31, 2008

PrimaryGovernment

Operating revenues:Net patient service revenue (net of provision for bad debt) 20,703,510$ Other 3,701,776

Total operating revenues 24,405,286

Operating expenses:Salaries and benefits 11,917,429 Medical professional fees 1,417,415 Medical supplies and drugs 1,276,204 Insurance 288,353 Other supplies 3,692,467 Depreciation and amortization 488,015 Other expenses 1,155,926

Total operating expenses 20,235,809

Operating income 4,169,477

Nonoperating revenues (expenses):Investment income 38,519 Loss on disposal of assets (2,308) Contribution to Greene County Hospital Foundation (33,074)

Total nonoperating revenues (expenses) 3,137

Increase in net assets 4,172,614

Net assets beginning of the year 16,056,867

Net assets end of the year 20,229,481$


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GREENE COUNTY GENERAL HOSPITALSTATEMENT OF CASH FLOWS - RESTRICTED AND UNRESTRICTED FUNDS

Year Ended December 31, 2008

2008Cash flows from operating activities:

Receipts from and on behalf of patients 20,627,627$ Payments to suppliers and contractors (5,137,575) Payments to employees (13,334,844) Other receipts and payments, net 1,029,993

Net cash provided by operating activities 3,185,201

Cash flows from capital and related financing activities:Purchase of capital assets (124,194)

Cash flows from investing activities:Interest and dividends on investments 38,519 Purchase of investments (1,015,249) Proceeds from sale of investments 47,971

Net cash used by investing activities (928,759)

Net increase in cash and cash equivalents 2,132,248

Cash and cash equivalents at beginning of year 2,443,809

Cash and cash equivalents at end of year 4,576,057$

Reconciliation of cash and cash equivalents to the Statement of Net Assets:Cash and cash equivalents in current assets 4,483,382$ Restricted cash and cash equivalents 92,675

Total cash and cash equivalents 4,576,057$

Reconciliation of operating income to net cash provided by operating activities:Operating income 4,169,477$ Adjustments to reconcile operating income to net cash flows used in operating activities:

Depreciation and amortization 488,015 Provision for bad debts 1,330,760 (Increase) decrease in current assets:

Patient accounts receivable (1,406,643) Supplies and other current assets 34,903 Due from Home Healthcare Agency (174,403) Due from Worthington Family Practice Clinic (166,564) Due from Greene County General Hospital Foundation (50,000)

Increase (decrease) in current liabilities:Accounts payable and accrued expenses 29,262 Other current liabilities 55,284 Estimated third-party payor settlements (1,124,890)

Net cash provided in operating activities 3,185,201$


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GREENE COUNTY GENERAL HOSPITAL NOTES TO FINANCIAL STATEMENTS

I. Summary of Significant Accounting Policies

A. Reporting Entity Greene County General Hospital (Hospital) is a county-owned facility and operates under the Indiana County Hospital Law, Indiana Code 16-22. The Hospital provides short-term inpatient and outpatient health care. The Board of County Commissioners of Greene County appoints the Governing Board of the Hospital and a financial benefit/burden relationship exists between the County and the Hospital. For these reasons, the Hospital is considered a component unit of Greene County. On September 28, 1910, the Board of County Commissioners of Greene County, upon written request of the Hospital Board of Trustees created the Greene County General Hospital Associ-ation. The Association was created pursuant to the provisions of Indiana Code 16-22-6 for the exclusive purpose of financing and constructing hospital facilities for the Hospital. The Associ-ation has been reorganized and is now known as the Greene County General Hospital Foundation, Inc. Management has chosen to omit from these financial statements Greene County General Hospital Foundation, Inc, Greene County Home Healthcare Agency, LLC and Greene County General Hospital, LLC (Worthington Family Practice Clinic), component units that have significant operational or financial relationships with the Hospital. Accordingly, the financial statements do not include the data of all of the Hospital's component units necessary for reporting in conformity with accounting principles generally accepted in the United States. Books and records are main-tained at the following principal offices:

Greene County General Hospital Foundation, Inc. 124 East Indiana Avenue Bloomfield, Indiana 47424 Greene County Home Healthcare Agency, LLC 2121 East Highway 54 Linton, Indiana 47441 Greene County General Hospital, LLC (Worthington Family Practice Clinic) 124 East Indiana Avenue Bloomfield, Indiana 47424

B. Enterprise Fund Accounting

The Hospital uses enterprise fund accounting. Revenues and expenses are recognized on the accrual basis using the economic resources measurement focus. Based on Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, as amended, the Hospital has elected to apply the provisions of all relevant pronouncements of the Financial Accounting Standards Board (FASB), including those issued after November 30, 1989, that do not conflict with or contradict GASB pronouncements.

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(Continued)

C. Assets, Liabilities and Net Assets or Equity

1. Deposits and Investments

Cash and cash equivalents include demand deposits and investments in highly liquid debt instruments with an original maturity date of three months or less. Short-term investments are investments with remaining maturities of up to ninety days. Statutes authorize the Hospital to invest in interest-bearing deposit accounts, passbook sav-ings accounts, certificates of deposit, money market deposit accounts, mutual funds, pooled fund investments, securities backed by the full faith and credit of the United States Treasury and repurchase agreements. The statutes require that repurchase agreements be fully col-lateralized by U.S. Government or U.S. Government Agency obligations. Nonparticipating certificates of deposit, demand deposits, and similar nonparticipating nego-tiable instruments that are not reported as cash and cash equivalents are reported as invest-ments at cost. Debt securities are reported at fair value. Debt securities are defined as securities backed by the full faith and credit of the United States Treasury or fully insured or guaranteed by the United States or any United States government agency. Open-end mutual funds are reported at fair value. Money market investments that mature within one year or less at the date of their acquisition are reported at amortized cost. Other money market investments are reported at fair value. Investments in affiliated companies are reported using the equity method of accounting, or at cost, as applicable. Other investments are generally reported at fair value. Investment income, including changes in the fair value of investments, is reported as non-operating revenues in the Statement of Revenues, Expenses, and Changes in Net Assets.

2. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting prin-ciples requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3. Capital Assets

Capital assets, which include land, land improvements, buildings and improvements, and equipment, are reported at actual or estimated historical cost based on appraisals or deflated current replacement cost. Contributed or donated assets are reported at estimated fair value at the time received.

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(Continued)

Capitalization thresholds (the dollar values above which asset acquisitions are added to the capital asset accounts), depreciation methods and estimated useful lives of capital assets reported in the financial statements are as follows: Capitalization

Threshold Depreciation

Method Estimated

Useful Life Land improvements $ 5,000 Straight-line 10 to 30 yearsBuildings and improvements 5,000 Straight-line 5 to 40 yearsEquipment 5,000 Straight-line 5 to 20 years For depreciated assets, the cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized.

4. Net Assets

Net assets of the Hospital are classified in two components. Net assets invested in capital assets net of related debt consist of capital assets net of accu-mulated depreciation and reduced by the current balances of any outstanding borrowings used to finance the purchase or construction of those assets. Restricted nonexpendable net assets equal the principal portion of permanent endowments. Unrestricted net assets are remaining net assets that do not meet the definition of invested in capital assets net of related debt or restricted.

D. Grants and Contributions

From time to time, the Hospital receives grants from Greene County and the State of Indiana as well as contributions from individuals and private organizations. Revenues from grants and con-tributions (including contributions of capital assets) are recognized when all eligibility require-ments, including time requirements are met. Grants and contributions may be restricted for either specific operating purposes or for capital purposes. Amounts that are unrestricted or that are re-stricted to a specific operating purpose are reported as nonoperating revenues. Amounts re-stricted to capital acquisitions are reported after nonoperating revenues and expenses.

E. Restricted Resources

When the Hospital has both restricted and unrestricted resources available to finance a particular program, it is the Hospital's policy to use restricted resources before unrestricted resources.

F. Operating Revenues and Expenses

The Hospital's Statement of Revenues, Expenses, and Changes in Net Assets distinguishes between operating and nonoperating revenues and expenses. Operating revenues result from exchange transactions associated with providing health care services – the Hospital's principal activity. Nonexchange revenues, including grants, and contributions received for purposes other than capital asset acquisition, are reported as nonoperating revenues. Operating expenses are all expenses incurred to provide health care services, other than financing costs.

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(Continued)

G. Compensated Absences

1. Sick Leave

Hospital employees earn sick leave at the approximate rate of one day per month. Unused sick leave may be accumulated to a maximum of 192 hours. Accumulated sick leave is paid to employees in good standing resigning during the year and working out their notice at 10% of the hours of the employee's accumulated sick leave through cash payments.

2. Vacation Leave Hospital employees earn vacation leave at rates from .03850 to .07692 hours per hours paid based upon the number of years of service. Vacation leave may be taken only after one con-tinuous year of service has been completed. Vacation leave may be accumulated to a maxi-mum of 400 hours. Accumulated vacation leave is paid to employees through cash pay-ments.

Vacation and sick leave is accrued when incurred and reported as a liability.

II. Detailed Notes

A. Deposits and Investments

1. Deposits

Custodial credit risk is the risk that, in the event of a bank failure, the government's deposits may not be returned to it. Indiana Code 16-22-3-15 requires only that money in the Hospital funds be deposited in the manner determined by the governing board. The Hospital does not have a formal policy regarding custodial credit risk for deposits. At December 31, 2008, the bank balance held at Hillard Lyons in the amount of $14,106 was uncollateralized. The remaining bank balances were insured by the Federal Deposit Insurance Corporation or the Public Deposit Insurance Fund, which covers all public funds held in approved depositories.

2. Investments

Authorization for investment activity is stated in Indiana Code 16-22-3-20. As of December 31, 2008, the Hospital had the following investments:

PrimaryGovernment

Investment MarketType Value

Mutual funds 99,245$

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(Continued)

Investment Policies Indiana Code 16-22-3-20 authorizes the Hospital to invest in: 1) any interest bearing account that is authorized to be set up and offered by a financial institution or brokerage firm registered and authorized to do business in Indiana; 2) repurchase or resale agreements involving the purchase and guaranteed resale of any interest bearing obligations issued or fully insured or guaranteed by the United States or any United States government agency in which type of agreement the amount of money must be fully collateralized by interest bearing obligations as determined by the current market value computed on the day the agreement is effective; 3) mutual funds offered by a financial institution or brokerage firm registered and authorized to do business in Indiana; 4) securities backed by the full faith and credit of the United States Treasury or fully insured or guaranteed by the United States or any United States government agency; or 5) pooled fund investments for participating hospitals offered, managed, and administered by a financial institution or brokerage firm registered or authorized to do business in Indiana. Investment Custodial Credit Risk The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. The Hospital does not have a formal policy for custodial credit risk for investments. At December 31, 2008, the Hospital held investments in mutual funds in the amount of $99,245. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The distribution of securities with credit ratings is summarized below.

Hospital's

Investments Standard

and Poor's Moody's MutualRating Rating Funds

Unrated Unrated 99,245$

Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a Hospital's investment in a single issuer. The Hospital does not have a policy in regards to concentration of credit risk. United States of America government and United States of America govern-mental agency securities are exempt from this policy requirement.

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(Continued)

B. Accounts Receivable and Payable Patient accounts receivable and accounts payable (including accrued expenses) reported as current assets and liabilities by the Hospital at year end consisted of these amounts:

C. Capital Assets

Capital asset activity for the year ended December 31, 2008, was as follows:

Patient Accounts Receivable

Receivable from patients and their insurance carriers 20,430,003$ Receivable from Medicare 3,260,439 Receivable from Medicaid 740,331

Total patient accounts receivable 24,430,773

Less allowance for uncollectible amounts 13,368,303

Patient accounts receivable, net 11,062,470$

Accounts Payable and Accrued Expenses

Payable to employees (including payroll taxes) 691,828$ Payable to suppliers 156,460

Total accounts payable and accrued expenses 848,288$

Beginning EndingPrimary Government Balance Increases Decreases Balance

Capital assets, not being depreciated:Land 759,198$ -$ -$ 759,198$ Construction in progress 204,672 - - 204,672

Total capital assets, notbeing depreciated 963,870 - - 963,870

Capital assets, being depreciated:Land improvements 440,077 - - 440,077 Buildings and improvements 7,502,607 - 52,248 7,450,359 Equipment 4,730,681 124,194 311,592 4,543,283

Totals 12,673,365 124,194 363,840 12,433,719

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(Continued)

D. Construction Commitments

Construction work in progress is composed of the following:

E. Leases

Operating Leases

The Hospital has entered into various operating leases having initial or remaining noncancelable terms exceeding one year for a cat scan, ultrasound equipment, radiology equipment and software (PACS). Rental expenditures for these leases were $229,188, $27,634, $121,536, and $86,317, respectively. The following is a schedule by years of future minimum rental payments as of year end:

F. Charity Care

Charges excluded from revenue under the Hospital's charity care policy were $792,707 for 2008.

Total Expended toProject December 31,

Project Authorized 2008 Committed

Assisted living project 204,672$ 204,672$ -$

2009 311,195$ 2010 215,700 2011 176,465 2012 91,152

Total 794,512$

Beginning EndingPrimary Government Balance Increases Decreases Balance

Capital assets, being depreciated(continued):

Less accumulated depreciation for:Land improvements 386,521 10,545 - 397,066 Buildings and improvements 4,865,054 274,351 19,174 5,120,231 Equipment 4,201,896 203,119 309,284 4,095,731

Totals 9,453,471 488,015 328,458 9,613,028

Total capital assets, beingdepreciated, net 3,219,894 (363,821) 35,382 2,820,691

Total primary government capital assets, net 4,183,764$ (363,821)$ 35,382$ 3,784,561$

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(Continued)

G. Internally Designated Assets

Noncurrent cash and investments internally designated include the following:

Funded Depreciation – Amounts transferred from the Operating Fund by the Hospital Board of Trustees through funding depreciation expense. Such amounts are to be used for equip-ment and building, remodeling, repairing, replacing or making additions to the Hospital build-ings as authorized by IC 16-22-3-13.

III. Other Information

A. Risk Management

The Hospital is exposed to various risks of loss related to torts; theft of, damage to, and destruc-tion of assets; errors and omissions; job related illnesses or injuries to employees; medical bene-fits to employees, retirees, and dependents (excluding postemployment benefits); and natural disasters. The risks of torts; theft of, damage to, and destruction of assets; errors and omissions; job related illnesses or injuries to employees; retirees, and dependents (excluding postemployment benefits); and natural disasters are covered by commercial insurance from independent third parties. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. There were no significant reductions in insurance by major category of risk. Medical Benefits to Employees The Hospital has chosen to establish a risk financing fund for risks associated with medical bene-fits to employees. The risk financing fund is accounted for in the General Fund, where assets are set aside for claim settlements. An excess policy through commercial insurance covers individual claims in excess of $30,000 per year. Settled claims resulting from this risk did not exceed com-mercial insurance coverage in the past three years. A premium is charged to the General Fund. The total charge allocated to each of the funds is calculated using trends in actual claims exper-ience. Provisions are also made for unexpected and unusual claims. Claim expenditures and liabilities of the fund are reported when it is probable that a loss has oc-curred and the amount of the loss can be reasonably estimated. These losses include an esti-mate of claims that have been incurred but not reported (IBNRs). Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amounts of payouts and other economic and social factors. However, claim liabilities cannot be reasonably estimated.

Internally designated:Funded depreciation:

Cash and cash equivalents 92,675$ Investments 99,245

Total funded depreciation 191,920$

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(Continued) B. Contingent Liabilities

Litigation

The Hospital is involved in litigation and regulatory investigations arising in the course of business. After consultation with legal counsel, management estimates that these matters will be resolved without material adverse effect on the Hospital's future financial position or results from operations.

C. Fair Value of Financial Instruments

The following methods and assumptions were used by the Hospital in estimating the fair value of its financial instruments:

Cash and Cash Equivalents The carrying amount reported in the Statement of Net Assets for cash and cash equivalents approximates its fair value. Short-Term Investments The carrying amount reported in the Statement of Net Assets is the investment's fair value on the day it becomes a short-term investment. Investments Fair values, which are the amounts reported in the Statement of Net Assets, are based on quoted market prices, if available, or are estimated using quoted market prices for similar securities. Accounts Payable and Accrued Expenses The carrying amount reported in the Statement of Net Assets for accounts payable and accrued expenses approximates its fair value. Estimated Third-Party Payor Settlements The carrying amount reported in the Statement of Net Assets for estimated third-party payor settlements approximates its fair value.

D. Fair Value Measurements

Statement on Financial Accounting Standards No. 157, Fair Value Measurements (as amended), requires certain disclosures regarding the fair value of financial instruments. Financial instru-ments held by the Hospital impacted by this pronouncement include the Hospital's investments and assets whose use is limited which are measured using quoted prices in active markets and other significant observable inputs. The Hospital partially adopted the provisions of FAS 157 for fiscal year 2008, but will delay adop-tion of nonfinancial assets and nonfinancial liabilities covered by FASB Staff Position No. FAS 157-2. This Staff Position permits entities to partially defer the effective date of FAS 157 for non-financial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal year 2009.

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(Continued)

When fully adopted, the Hospital will apply the provisions of FAS 157-2 to certain nonfinancial assets and liabilities and is currently evaluating the impact of the full adoption of this statement on the activities, changes in net assets and financial position. Using the provisions within SFAS No. 157, the Hospital has characterized its investments in securities, based on the priority of the inputs used to value the investments, into a three-level fair value hierarchy. The fair value hierar-chy gives the highest priority to quoted prices in active markets for identical assets or liabilities [Level 1], and the lowest priority to unobservable inputs [Level 3]. If the inputs used to measure the investments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the investment. Investments recorded in the statement of financial position are categorized based on the inputs to valuation techniques as follows:

Level 1 - These are investments where values are based on unadjusted quoted prices for identical assets in an active market the Hospital has the ability to access. Investments in-clude mutual funds. Level 2 - These are investments where values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the investments. These investments are comprised of U.S. government securities that trade infrequently and certificates of deposit. Level 3 - These are investments where values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value meas-urement. These inputs reflect assumptions of management about assumptions market par-ticipants would use in pricing the investments.

Based upon the levels as defined the Hospital's investments as of December 31, 2008, are classified as follows:

E. Estimated Third-Party Settlements

Regulations in effect require annual retroactive settlements for third-party settlements based upon cost reports filed by the Hospital. These retroactive settlements are estimated and recorded in the accompanying financial statements. Changes in these estimates are reflected in the year in which they occur. During 2008, net patient service revenues in the accompanying statements of operations were decreased by $1,124,890, to reflect changes in the estimated settlements for certain prior years.

Quoted Prices in SignificantActive Markets for Signifcant Other Unobservable

December 31, Identical Assets Observable Inputs InputsInvestment Type 2008 (Level 1) (Level 2) (Level 3)

Certificates of deposit 1,015,249$ -$ 1,015,249$ -$ Mutual funds 99,245 99,245 - -

Totals 1,114,494$ 99,245$ 1,015,249$ -$

Fair Value Measurements at Reporting Date Using:

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(Continued)

F. Pension Plan

Defined Contribution Pension Plan Plan Description The Hospital has a defined contribution pension plan administered by Nationwide Investment Services Corporation as authorized by IC 16-22-3-11. The plan provides retirement, disability, and death benefits to plan members and beneficiaries. The plan was established by written agreement between the Hospital Board of Trustees and the Plan Administrator. The Plan Admin-istrator issues a publicly available financial report that includes financial statements and required supplementary information of the plan. That report may be obtained by contacting:

Nationwide Investment Services Corporation 1 Nationwide Plaza Columbus, Ohio 43215-2220

Funding Policy and Annual Pension Cost The contribution requirements of plan members are established by the written agreement be-tween the Hospital Board of Trustees and the Plan Administrator. The Hospital is required to contribute at an actuarially determined rate. The current rate is 8.4% to 12.7% of annual covered payroll. Employer contributions to the plan were $854,474.

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GREENE COUNTY GENERAL HOSPITAL EXIT CONFERENCE

The contents of this report were discussed on August 10, 2009, with Jonas S. Uland, Executive Director; and Timothy W. Norris, Treasurer. Our audit disclosed no material items that warrant comment at this time.

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